Some potential buyers might be sitting on the fence waiting for home prices to hit bottom as they want to ensure that they are purchasing at the best possible price. There may actually be some room for prices to drop a little further in our area. But I would suggest that waiting is not the best financial decision for a buyer today.
Below I pose and respond to the following question -
Should a buyer be more concerned about the “PRICE” of the home or
should they really be more concerned about the overall “COST” of the home?
The cost of a house is made up of the price AND THE INTEREST RATE they will be paying on their mortgage financing.
The average median residential price was $417,917 in the fourth quarter of 2010, down 3.5% from $432,833 in the fourth quarter of 2009 here in the Central Okanagan.
A buyer who delayed a purchase might be happy with the fact that prices have come down and think they have made a great decision but with interest rates on the rise, that decision could be questioned.
Five year fixed interest rates have increased 35 basis points since the beginning of the fourth quarter of 2010.*
No one has a crystal ball but here are the latest interest rate predictions from the Big 6 Banks which could translate to a further one percent increase in mortgage interest rates by the end of this year.
The Big 6 Banks currently expect prime rate to climb 200+ basis points (bps)
in the next 24 months. They project 5-year bond yields rising over 125 bps.
So prices have declined slightly but interest rates have risen significantly in the last few months. So what does this mean to a buyer who is looking to purchase a home this year?
Let’s take a look at what this could mean to the buyer who decided not to buy during the last quarter of 2010 because they thought that the prices would drop further but are now considering purchasing a home sometime this year.
They are financing the same amount, but now it is costing them more.
DATE MTG AMT RATE MONTHLY PMT
OCTOBER 2010 $360,000 3.69%* $1649.28
TODAY $360,000 4.04* $1720.03
OCTOBER 2011 $360,000 5.04% $1929.89
By sitting on the fence until now the buyer has lost:
• $70.75 a month, $849.00 a year, $4,245 in payments over the five year term
• Will pay an additional $6,089 in interest over the 5 year term
By sitting on the fence since October and waiting until later this year a buyer could potentially lose:
• $280.61 a month, $3,367.32 a year, $16,836.60 in payments over the five year term
• Will pay an additional $23,563.04 in interest over the 5 year term
Here’s the bottom line:
Even if home prices fall another 10% this year, the cost of a home will increase if interest rates go up by more than 1.00%. Perhaps buyers should not be so concerned about where prices are going but be more concerned about where their interest rate costs will be later on this year.
The important number to consider is the OVERALL COSTof the home and not just the purchase price.
Why not share this information with anyone that may still be sitting on the fence and can't decide whether they should purchase now. With our historically low interest rates this is a great time to buy for both investors and those looking to move up or buy their first home.
Compliments of: April Dunn, Mortgage Broker
Mortgage Alliance Homeline Mortgage
Please let me know if I can be of any assistance.
Karen Guy, REALTOR®
I am the GUY that will make a difference!
Coldwell Banker Horizon Realty
C 250.878.3605 O 250.768.8001